3

Chapter
3
chapter

Leveraging
Resources and
Capabilities

Global Strategy
Global Strategy
Mike W. Peng
Mike W. Peng

Copyright
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© 2014
2014 Cengage
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 Outline
• Understanding resources and capabilities
• Resources, capabilities, and the value chain
• The VRIO framework
• Debates and extensions
• The savvy strategist

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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
 Understanding Resources and
Capabilities
• Tangible • Intangible
 Resources and  Resources and
capabilities that are capabilities not easily
observable and easily observed or difficult (or
quantified impossible) to quantify
 Broadly organized in  Examples include:
three categories:  Human
 Financial  Innovation
 Physical  Reputation
 Technological

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accessible website, in whole or in part.
 Competing on Resources
• Focus of the industry-based view:
 How “average” firms within an industry compete.

• Focus of the resource-based view:

 How individual firms differ from each other within an
industry and can outperform the industry average
consistently and significantly.

3–4
SWOT ANALYSIS

Strengths and
Weaknesses – internal
assessment of the
organization leading
to management
decisions.
Opportunities and
Threats – external
assessment of the
business environment
to identify the
uncontrollable events
that might impact
management decisions.
5
 Resources, Capabilities,
and the Value Chain
• Value Chain
 The functional activities within the firm that create
value in the goods and services produced
• Components of the Value Chain
 Primary activities
 Are directly associated with the development,
production, and distribution of goods and services
 Support activities
 Assist in the accomplishment of primary activities
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accessible website, in whole or in part.
 The Value Chain

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be scanned, copied or duplicated, or posted to a publicly Figure 3.1
accessible website, in whole or in part.
8
 In-House versus Outsource
OUTSOURCING: Turning over all or part of an
organizational activity to an outside supplier which will
perform it on behalf of the focal firm.

9
 The VRIO Framework
• VRIO
 An analysis of the “sticky” nature of resources and
capabilities of a firm and the difficulty of their
replication elsewhere.
• Two Key Assumptions:
 Resource heterogeneity
 Each firm has a unique combination of resources
and capabilities such that no two firms are “twins.”
 Resource immobility
 Resources and capabilities unique to one firm
cannot easily migrate to competing firms.
3–10
 VRIO FRAMEWORK
(additional case study: Enhancing VRIO
@ Burberry)
Do resources or capabilities add value?

Are they
rare?
How imitable are certain
resources and
capabilities?
How is the firm
organized to deliver
superb performance?
© M. W. Peng (www.mikepeng.com)
11
 The VRIO Framework:
Is a Resource or Capability…

COSTLY TO EXPLOITED BY
IMITATE? ORGANIZATION
VALUABLE? RARE? COMPETITIVE IMPLICATIONS FIRM PERFORMANCE

No No Competitive disadvantage Below average

Yes No Yes Competitive parity Average

Yes Yes No Yes Temporary competitive advantage Above average

Yes Yes Yes Yes Sustained competitive advantage Consistently above average

Copyright © 2014
Cengage Learning. All
Rights Reserved. May
not be scanned, copied
or duplicated, or posted
to a publicly accessible
website, in whole or in
part.
Sources: Adapted from (1) J. Barney, 2002, Gaining and Sustaining Competitive
Advantage, 2nd ed. (p. 173), Upper Saddle River, NJ: Prentice Hall; (2) R.
Hoskisson, M. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 118),
Cincinnati: South-Western Cengage Learning.. Table 3.2
 The VRIO Framework: Value and Rarity
• Four fundamental questions of VRIO
 Value: do the resources and capabilities add value?
 Necessary for a competitive advantage
 Rarity: how rare are the valuable resources and
capabilities?
 Valuable, but common parity, not advantage
 Valuable and rare can lead to temporary
advantage
 If everyone has it, you can’t make money from it

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accessible website, in whole or in part.
 The VRIO Framework: Imitability
• Easier to imitate tangible resources/capabilities than
tangible ones
• Why is imitation so difficult?
 Hard to acquire in a short time what competitors have
developed over a long time
 Events earlier in time affect future events
 Difficult to identify causal determinants of performance

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accessible website, in whole or in part.
 The VRIO Framework: Imitability
(cont’d)
• Valuable, rare, but imitable
resources/capabilities = temporary advantage
• Only valuable, rare and hard-to-imitate
resources/capabilities = sustained competitive
advantage

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accessible website, in whole or in part.
 The VRIO Framework: Organization
• The Question of Organization
 How is a firm organized to develop and leverage the
full potential of its resources and capabilities?
• Using complementary assets effectively
• Managing social complexity effectively
 Invisible relationships can add value - make imitation
more difficult

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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
 Strategic Sweet Spot

Copyright © 2014 Cengage Learning. All Rights Reserved. May not Figure 3.5
be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
 Debates and Extensions
• Firm- versus Industry-Specific Determinants of
Performance: Both views are complementary to
each other
• Static Resources versus Dynamic Capabilities
• The resource-based view: incorporating dynamic
capabilities
 Tacit knowledge
 “Learning before doing” versus “learning by doing”
 Simple rules to guide behavior and decisions
 Develop new resources/capabilities
 Less bundled resources/capabilities
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accessible website, in whole or in part.
 Dynamic Capabilities in Slow- and Fast-Moving Industries
SLOW-MOVING INDUSTRIES FAST-MOVING (HIGH-VELOCITY) INDUSTRIES

Market environment Stable industry structure, defined boundaries, Ambiguous industry structure, blurred boundaries,
clear business models, identifiable players, fluid business models, ambiguous and shifting
linear and predictable change players, nonlinear and unpredictable change

Attributes of Complex, detailed, analytic routines that Simple, experiential routines that rely on newly
dynamic capabilities rely extensively on existing knowledge created knowledge specific to the situation
(“learning before doing”) (“learning by doing”)

Focus Leverage existing resources and capabilities Develop new resources and capabilities

Execution Linear Iterative

Organization A tightly bundled collection of resources A loosely bundled collection of resources that are
with relative stability frequently added, recombined, and dropped

Outcome Predictable Unpredictable

Strategic goal Sustainable competitive advantage A series of short-term (temporal)

(hopefully for the long term) competitive advantages

Copyright © 2014 Cengage

Learning. All Rights Reserved.
May not be scanned, copied or
duplicated, or posted to a
publicly accessible website, in
Sources: Adapted from (1) K. Eisenhardt & J. Martin, 2000, Dynamic capabilities: What are whole or in part.
they? Strategic Management Journal, 21: 1105–1121; (2) G. Pisano, 1994, Knowledge,
integration, and the locus of learning, Strategic Management Journal, 15: 85–100. Table 3.3
 Offshoring vs. Non-Offshoring
• Offshoring (international outsourcing) is an increasing
movement
• Outsourcing of high-end services such as IT and BPO is
controversial because of the relatively recent rise of the
internet—Long-term benefits are still unknown
• Proponents argue that outsourcing saves firms
enormous costs and allows them to focus more on their
core business
• Critics argue on 3 points
 Strategic: If everything is outsourced, what is left for the US
firm?
 Economic: Do developed economies actually gain?
 Political: Are we both exploiting cheap labor as well as willingly
putting our own security at risk?
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21
 The Savvy Strategist
• Developing resources/capabilities that are valuable, rare,
hard-to-imitate, and embedded in organizational
structures and systems can help firms achieve
successful performance
• Lessons from the VRIO framework
 Task for strategists - build firm strengths by identifying,
developing, and leveraging resources/capabilities
 Imitation is not likely to be a successful strategy
 Sustained competitive advantage will not last forever
 Firms should try to develop “strategic foresight”

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 The Savvy Strategist (cont’d)
• Four fundamental questions: Resource Based
Views
 Why do firms differ? Resource heterogeneity
 How do firms behave? Take advantage of strengths
and overcome weaknesses
 What determines the scope of the firm? How a firm
performs relative to rivals
 What determines the international success and failure
of firms? Firm-specific resources/capabilities and a bit
of luck

Copyright © 2014 Cengage Learning. All Rights Reserved. May not

be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.